There are cheers and jeers in Ontario, Canada, with the cheers coming from traditional private venture capital fund managers and their backers.
The jeers are coming from Labour Sponsored Investment Funds (LSIFs), which, according to a recently announced policy change, will soon lose a crucial tax credit and with it, the support of thousands of small investors.
In August, Ontario’s Ministry of Finance announced that investors in publicly traded LSIFs will no longer enjoy a 15 percent tax credit. The pro-gram was created by the government in 1988 with the hope of fueling job growth. In brief the tax credits encouraged individual investors to back the creation of pools of capital which were in turn required to invest in small and medium Canadian businesses. Canada has a federal as well as numerous provincial LSIF programs. Ontario has some 46 registered LSIFs.
As the years went by, general partners in Canada’s fledgling private-sector venture capital industry complained that the LSIFs were distorting the market and, worse, were not incented to make good investments because their managers were paid based on assets under management, not profits.
Last year Ontario announced a moratorium on the creation of new LSIFs while the government studied their effectiveness. In the meantime, an LSIF called Crocus grabbed headlines in Canada when its senior executives were accused of inflating the value of the investment portfolio. Crocus is currently negotiating a settlement with the Ministry of Finance.
According to the recent announcement from the Ministry of Finance, the LSIF program ?has achieved some success but the government has been encouraged by what it describes as the development of more than 200 private sector venture capital funds, as well as more than 200 US venture capital funds that have invested in Canadian companies. ?Ontario’s venture capital market is much healthier now, and we believe that this [tax] incentive is no longer the best fit in today’s economic and fiscal climate.?
For the many private sector venture capitalists who complained about competing with subsidized fund managers, the policy change gives hope that Canada’s small VC market is poised to become healthier still.
EC admits fund laws ?could function better?
The European Commission’s recently issued ?Green Paper on the European Union’s regulatory environment for investment funds finds that fund regulations ?could function better. The EC is encouraging comment on the matter to be submitted by November 15,2006. In a letter to clients, law firm Debevoise & Plimpton noted that only roughly 16.1 percent of investment funds in the EU are sold on a cross-border basis. ?Economies of scale in all aspects of the [fund management] business are lacking, producing higher fees and reduced net returns to investors, notes the Debevoise memo. The Green Paper takes special note of the development of hedge funds and private equity funds, which face fragmented regulatory regimes across Europe. The EC has proposed a working group to assess ?whether a common regulatory approach could help or hinder development of the market for these products notes the Debevoise memo. One challenge the creation of a common definition of a ?private placement across Europe.
SEC adopts shell-company rules
The US Securities and Exchange Commission has created new rules related to filings made by shell companies. The SEC defines shell companies as registrants ?with no nominal operations and either no or nominal assets, assets consisting solely of cash and cash equivalents or assets consisting of any amount of cash and cash equivalents and nominal other assets, according to a client alert from law firm Proskauer Rose. The rules are designed to ferret out fraudulent schemes involving shell companies. According to the memo, the major new rules include the prohibition of the use of Form S-8 by shell companies; the filing of Form
8-K when the company ceases to be a shell company the requirement of a foreign private issuer to file a ?shell company report on Form 20-F; and shell company identification check boxes on the cover pages of Form 10-Q,10-QSB,10-K,10-KSB and 20-F
VC exec named CIO of software company
Mercury Interactive Corporation, a California-based global provider of business technology optimization software, has appointed Cecilia Claudio as chief information officer. Claudio is currently an advisor to Clearstone Venture Partners, an IT-focused venture capital firm where she formerly served as executive-in-residence. Prior to joining Mercury, Claudio was CIO and vice president at medical device company Align Technology. Claudio has also worked in the financial services industry acting as executive VP and CIO of Zurich Financial Services from 1998 to 2003. Created in 1997, Clearstone is led by founder Bill Elkis and operates from its California offices in Santa Monica and Menlo Park.
Quester adds IP specialist
UK venture capital firm Quester has hired Penny Attridge as director of intellectual property. Attridge will lead a program to help universities convert intellectual property into commercially viable enterprises. She joins Quester from BTG, where she identified and acquired early stage inventions from academia and midsized businesses. Commenting on the hire, Iain Wilcock, director of Quester, said:?The appointment..is a significant strategic move for us. Penny will play a key role in broadening our pharmaceutical and university networks and will build on the success that Quester already has experienced creating spin-out companies under our long-term university partnerships.?
Latin American association announces new leadership
In a deviation from the past, the Latin American Venture Capital Association will be led by the head of a venture investment group instead of a private equity firm. David Thomas, managing director of Intel Capital Latin America, is the association’s newly elected chairman, succeeding the reign of regional private equity heavyweights Richard Frank, CEO of Darby Overseas Investments, and Everett Santos, CEO of Emerging Market Partnership’s Latin American Fund. While Frank and Santos both previously served as high level investment officials at the International Finance Corporation and operate out of Washington, DC, São Paulo-based Thomas’ career has focused exclusively on the private sector. Founded in 2002, LAVCA seeks to promote the development of venture capital and private equity in Latin America.
Two firms expand in Frankfurt
Two European private equity firms, 3i and AXA Private Equity, have bolstered their respective Frankfurt offices through key hires.3 announced last month it hired Frederik Roth as a senior director of European buyouts. Roth joins the firm from rival Permira, where he spent nine years pursuing buyouts from the Frankfurt office. He has held managerial positions at Swiss automotive groups ABB and US-based Aeroquip. In other news, Paris-based AXA hired Werner Quillmann to its German team in Frankfurt. Quillmann is a founder of Equita Management, the German private equity arm of Harald Quandt Group, founded in 1990. Prior to that, Quillmann was man-aging director of BB Kapitalbeteil-gungsgesellshaft, where he led the creation of a fund. In July, Nordic firm EQT promoted partner Marcus Brennecke to head up its German operations.
Warburg Pincus adds marketing VP
Global private equity firm Warburg Pincus has hired Christopher Jun in the New York office as a vice president of marketing. Previously Jun was deputy managing director and financial communications practice leader at Edelman public relations. Before that, he worked at the California Technology, Trade and Commerce Agency. Jun reports to Julie Johnson Staples, a managing director in charge of marketing who joined the firm in 2001. Johnson Staples was an executive managing director and US Director of media relations at Hill & Knowlton.
Breward joins Amadeus as COO
European technology venture capital firm Amadeus Capital Partners has hired Alastair Breward as chief operating officer. As COO, Breward will oversee the activities of Amadeus’ support team, which includes HR manager Maureen O’Donnell, financial controller Michael Lacey and information manager David Sykes. Breward will also assist Amadeus CEO Anne Glover in the firm’s fundraising and investor relations activities. Prior to joining Amadeus, Breward had served as an external advisor to the firm. Breward was previously a partner at London-based commercial law firm, Taylor Wessing, where he advised VC funds and high-growth IT companies in the U. S. and Europe. In addition to his legal background, Breward also possesses IT know-how, obtained early in his career while working as a programmer, consultant and customer services manager in the industry.